TPG and Affinity set to bid for UTAC

Texas Pacific Group and Affinity Equity Partners are set to launch a bid for United Test and Assembly Center in a deal likely to value the Singapore-listed company at close to US$1.7bn.

People close to the situation said that an announcement was imminent. Shares in UTAC, the world’s fifth largest microchip testing and packaging company, were suspended on Monday, sparking speculation that it was on the verge of receiving a buy-out offer.

UTAC shares last traded at S$1.08 on Friday, with a takeover bid expected at between S$1.15 and S$1.20. People familiar with the deal said that would value the company at up to US$1.7bn, including debt.

The expected deal would be subject to shareholder and regulatory approval and would represent the largest ever buy-out of a Singapore-listed company, according to Dealogic, the data provider.

It would be the latest in a string of private equity buy-out approaches in Singapore in recent months, amid fervent mergers and acquisitions activity in the technology sector across Asia.

Specifically, the chip testing and packaging industry is attracting interest from private equity funds because of expectations of an industry rebound.

UTAC has expanded rapidly since 2003 by buying Taiwan’s UltraTera and NS Electronics Bangkok in Thailand.

Earnings nearly doubled last year to US$76m as sales increased by 75 per cent to US$570m. Its main clients include Broadcom and SanDisk.

However, in April, UTAC reported a 13 per cent fall in first-quarter net profit due to weaker operating margins and last month admitted to holding talks with interested parties about a possible takeover.

Analysts said that the UTAC share price had under-performed since it was listed in 2004 but it has climbed 50 per cent this year to a one-year high on the back of takeover speculation.

UTAC has manufacturing facilities in Singapore, China, Taiwan and Thailand and employs 9,000 people.

In March, Temasek, Singapore’s state investment agency, bid US$1.6bn for STATS ChipPAC, a larger local rival to UTAC, while Kohlberg Kravis Roberts bid US$664m for MMI Holdings, an electronics component maker, a month later.

Singapore’s electronics manufacturers are under increasing pressure to consolidate amid fierce competition with rivals based in China and Taiwan, who are regarded as either cheaper on price or providing customer service.

The consortium is being advised and financed by JPMorgan, Merrill Lynch and ABN Amro, all of whom declined to comment.